With softening of rates in the corporate bond market, housing finance firms are preferring bond issuances over bank loans and plans to raise over Rs 1.37 lakh crore are already lined up for the current fiscal.
Market leader HDFC last week told stock exchanges that it sought shareholder approval to raise up to Rs 85,000 crore through non-bank funding this year – primarily non-convertible debentures, warrants and other debt instruments.
Out of the planned Rs 85,000 crore fund raising, Rs 5,000 crore will be through NCDs, it added.
Similarly, one of the largest mortgage lenders, LIC Housing Finance is looking to raise Rs 40,000 crore through issuance of non-convertible debentures in the current fiscal.
In the first quarter itself, it had raised Rs 7,000 crore from the bond market.
“We are reducing high cost borrowing (from banks) and increasing low-cost borrowing through non-convertible bonds,” LIC Housing Finance MD and CEO Sunita Sharma told PTI.
The company had brought down its bank funding to 19 per cent from 25 per cent as of FY15-end and to around 16 per cent in the June quarter.
Its cost of borrowing in the first quarter stood at a low 8.96 per cent.
LICHFL’s weighted average cost of funds has come down to 9.38 per cent as of Q1 of 2015-16 from 9.77 per cent in 2011-12.
Lower cost of funding also helped the mortgage lender increase its net profit by 19 per cent to Rs 382.13 crore in the June quarter.
Another housing finance company, Indiabulls Housing Finance is looking to raise around Rs 12,000 crore from the bond market, of which it had raised Rs 4,000 crore in the first quarter.
“Raising money from bonds is much cheaper than bank borrowing and so, we want to maximise our bond issuances. We are planning to raise around Rs 8,000 crore more through bonds in the rest of the fiscal,” its Deputy Managing Director Ashwini Hooda said.
Hooda said the company wants to increase share of bond funding to 40 per cent by the end of this fiscal, from the 35 per cent now. Currently, the share of bank borrowing is 55 per cent, which would come down to 50 per cent this year.
The company has also sought regulatory approval to raise USD 500 million through external commercial borrowings.
Dewan Housing Finance (DHFL) has decreased its bank borrowing to 57 per cent from 70 per cent in the last one year.
“We want to increase our reliance on bonds for our funding requirements,” Chairman and Managing Director Kapil Wadhawan said, adding that the company plans to raise Rs 20,000 crore through NCDs and ECBs this fiscal.
The average cost of funds for NBFCs borrowing from banks is in the range of 10.5-12 per cent, depending on the risk associated with the company.
However, in the case of money raised through rated corporate bonds, the average cost of funds is in the range of 8.5-10 per cent, based on the instrument from which the funds are raised.
Cost of borrowing from an AAA-rated corporate bond is around 8.45-8.5 per cent while through a AA-rated instrument, it is around 9.5-10 per cent.
An NBFC with a better credit risk profile can borrow at a further lower rate from the bond market.
According to Ajay Manglunia, senior vice-president (fixed income) at Edelweiss Securities, NBFCs are tapping the corporate bond market as the rates are lower and they can save their margins.
“Unless and until they optimise their borrowing costs, it is difficult for them to remain competitive and to maintain margins. So, they look for avenues where funds can be raised at a cheaper level,” he said.